Anxious French consumers cut back as election and budget battles loom

By Leigh Thomas

PARIS, Sept 11 (Reuters) – A cash-strapped customer split an entrecôte steak with a companion the other day at David Zenouda’s Paris restaurant while others increasingly share starters, skip wine at lunch or opt only for a main course.

It’s a sign of the times for businesses that depend on France’s increasingly frugal consumers, squeezed by rising inflation, high energy prices and mounting economic anxiety ahead of next year’s presidential election.

“The purchasing power is really limited,” Zenouda said. “The only cafe terraces that are full are those offering 4-euro ($4.66) pints of beer.”

Making up half of France’s gross domestic product, consumer spending is traditionally the motor of growth for the euro zone’s second-biggest economy, and value-added tax is the single biggest source of government income.

So when French consumers pull back it’s not only a drag on the economy. It’s also a headache for the finance ministry, which needs the revenue to square a 2027 budget that can pass France’s divided parliament — a task that toppled the last two governments.

The consumer anxiety is showing up in surveys. A September poll by consumer credit firm Cofidis found 60% of French people believe inflation is accelerating while 58% said they are cutting non-essential spending and 54% are paying closer attention to prices.

More than half expect their purchasing power to deteriorate further over the next year, up 10 percentage points from a year earlier.

“There’s war in the Middle East, we had a severe heatwave and wildfires this summer, an election is approaching and unfortunately we are refinancing a very high level of public debt. The backdrop is not very reassuring,” Cofidis France marketing director Mathieu Escarpit told Reuters.

ECONOMIC CLOUDS

For economists and business leaders, such caution poses a risk to the economy as it struggles to gain momentum.

Grocery chain Systeme U’s chief, Dominique Schelcher, said last week households were in entrenchment mode heading towards the election while economist Mathieu Plane with the French Institute for Economics said rising oil prices and weak wage growth were eroding consumers’ remaining spending power.

“They are considering avoiding going on holiday or taking weekend breaks by car, cutting back on leisure spending, eating out, buying clothes and fuel costs,” Escarpit told Reuters.

Clothing retailers reported weak summer sales with revenue down more than 5% from a year earlier even though the government-regulated season was extended by an extra week to give the sector a lift, according to industry group Fédération Nationale de l’Habillement.

France barely escaped a recession earlier this year, posting flat growth in the second quarter after contracting 0.2% in the previous three months and faring worse than other big European economies like Germany and Italy, data from the INSEE statistics agency showed last month.

A 0.3% rebound in consumer spending helped keep France out of recession, but a closer look shows households achieved that only by dipping into savings, which remains well above pre-COVID levels.

After adjusting for inflation, households’ disposable income, a key measure of purchasing power, fell 0.5% in the second quarter while their savings rate declined to 17.2% from 17.9% in the previous quarter.

POLITICAL STAKES

With no immediate relief in sight, declining purchasing power is shaping up to be a major battleground in the April 18/May 2 presidential election – just as it was in the 2024 legislative vote when the far-right National Rally (RN) won a record seat haul on a cost-of-living and anti-immigration platform.

“People are already saying: ‘I’m putting some money aside because I don’t know what the new president’s tax policies will be’, and that’s not good for consumer spending,” Schelcher said on France Inter radio.

RN candidate Marine Le Pen, who is leading in the polls, wants to cut value-added tax on energy while hard-left contender Jean-Luc Melenchon has called on companies to raise wages to avoid a consumer-led recession.

Centre-right candidates Gabriel Attal and Edouard Philippe both want to reduce the middle class tax burden by lowering payroll welfare contributions, though economists warn France has few options it can afford.

“There is no longer really any scope for action on the purchasing power front as the state doesn’t have the means to support households,” Plane said.

($1 = 0.8585 euros)

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(Reporting by Leigh ThomasEditing by Gabriel Stargardter and Toby Chopra)

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